First-Time Buyers Mortgage Stress

Is Getting Your First Mortgage Stressful?

Homeowners often say that buying their first property was one of the most stressful things they have ever done.  I wonder if subsequent purchases were just as stressful?

Let’s face it, the home-buying process is not easy even in the best of markets so it must be a terrible shock for first-time buyers.   A first-time buyer currently has the initial worry of just getting a mortgage at the moment.  Most first-time buyers need a 25% deposit in order to secure their first mortgage so think about the stress in finding that kind of money.  Then there is the current market conditions, is the property valued correctly, is it really worth that much and what will it be worth in a few years time?  There’s the issue of finding a good solicitor and understanding the legal process they will have to go through and going back to the mortgage issue, whether to get advice from a broker or go direct to a lender and do their own research?  To top it all off, once the first-time buyer has got this far and found a property, made an acceptable offer and proceeded with all of the legal and financial work, they then have the worry of the chain falling apart.

It’s no wonder the home-buying process is so stressful but it must feel ten times worse for first-time buyers.  Is there a way to stop or relieve this stress?  Well, not really.  The only options that might ease the pressure could be shared ownership schemes (but finding a mortgage might be more difficult) or asking for parental help with deposits etc.  The brokerage community genuinely feel that they can and do help in offering advice to first-time buyers and holding their hands through the process so it’s worthwhile just having an initial consultation with a broker just to see if it could make things easier during the home-buying process.

The Advantages Of Using A Mortgage Broker

A Mortgage broker acts as a middle man between you, the borrower, and the lender and can be an invaluable source of knowledge and expertise.

A mortgage broker’s role is to help and guide you through the mortgage application process.  This involves explaining the various rates and options available to you, comparing all of the various lenders and making recommendations, helping you to complete the application, packaging the application for the lender which results in a faster mortgage offer and liaising with the lender and your solicitor to ensure a smooth transaction.  More than 50% of all mortgages in the UK are submitted by brokers acting on behalf of their clients. 

Mortgage brokers can be whole of market whereby they are able to offer advice on products from all lenders in the UK or tied advisers where they offer products from a selection of lenders.  The broker should always tell you their status when you meet them.

Mortgage Broker Advantages

  • Access to the whole of the market in most cases
  • Qualified advice.  Mortgage brokers are regulated by the FSA and have to not only pass exams to be able to give advise but also demonstrate a continued professional development to the FSA to ensure that their knowledge base is always up to date.
  • A mortgage broker can save you a lot of time.  Because mortgage brokers know which lenders have the best products, fastest underwriting, best customer service etc they are able to get you your mortgage offer quicker than you going direct to the lender in most cases.  Mortgage brokers also help in completing application forms which most people find very time consuming.
  • A mortgage broker can save you money.  As a broker is able to access the whole of the market (in most cases) they are able to find the best rates but more importantly they have the tools to be able to find the best product that matches your needs. 
  • Mortgage brokers are able to access the whole of the market but brokers are also members of exclusive mortgage clubs which offer rates not found on the high street.  These clubs can represent an excellent source of business to lenders so lenders are keen to offer competitive rates for that business.

Mortgage brokers can and do help but they are middlemen and some people like to cut out the middle man in an effort to save time.  As brokers we have seen plenty of cases where clients have been to see their bank or building society direct only to be told that they did not qualify for that product or they did not meet criteria.  Would it surprise you to find that we were able to go back to the lender and place that rate?  Brokers know how the mortgage market works and they know how to package an application and what the lender is looking for.

Should I buy Or Rent?

Right now many people are wondering whether to buy or carry on renting.  The housing market has taken quite a knock recently but there are signs of house prices increasing and continuing to do so.  However you look at it at home will always be an investment, more importantly YOUR investment.  With every rental payment you make you are supporting some else’s investment.

It might more apt to ask whether or not you are in a position to buy right now.  Lenders in the UK are still focusing their attention on the 75% and below loan-to-value sector.  If you are a first time buyer looking to purchase your first property you are going to need a 10% deposit in order to secure a mortgage offer.  Even then there will not be many lenders to choose from.   Lenders are still unwilling to offer 95% products as they have done in the past  and the possibility of 100% mortgages seem a million miles away.

A 10% deposit is a large sum of money to put down when you consider the current average house price is £169042 (source: Halifax house price index 7th January 2010) and if house prices continue to increase it is only going to get harder. 

If house prices continue to rise as they have done over the last 5 months and lenders are able to offer more competitive products to a wider loan to value ratio then to buy right now might be a very good idea.

 

How Does A Repayment Mortgage Work?

With a repayment mortgage (or capital and interest mortgage) your payments are made up of two parts, capital and interest.  During the early years the main proportion of each of your monthly payments will go to interest payments whilst in the later years the main element will be capital payments.  In other words, in the early years you don’t accrue much debt reduction.

Advantages Of A Repayment Mortgage

The Main advantage to a repayment or capital and interest mortgage is that you are guaranteed to pay off your mortgage within the set term provided you maintain your monthly payments.  Another advantage to a repayment mortgage is the ability to see exactly how much you owe each year when you receive your annual mortgage statement.

Disadvantages Of A Repayment Mortgage

A repayment mortgage does not contain any life assurance element so a seperate life assurance policy needs to be taken out.  This can often be seen as an extra to the mortgage and not seen as part of the mortgage which it should be.  As there is no investment element to a repayment mortgage there is no chance of paying off your mortgage earlier than expected (due to strong performance in the stock market) or the possibility of any additional return over and above the mortgage debt which can sometimes happen with investment backed mortgages.

FSA To Limit Mortgage Lending To 3 x Salary?

There have been articles in the press recently that the FSA could be making an announcement about future lending guides.  These articles say that the FSA may limit mortgage lending to 3 x salary. 

It is easy to see why the FSA might suggest this.  Repossessions are on the increase despite a fall in mortgage rates and the general cost of living is going up.  It is also proven that lenders were lending recklessly which has led to some of the problems of the credit crunch. Is setting the lending limit at 3 x salary a good idea then?

On a positive note it would ensure that if you can get the mortgage, you can definitely afford it as well as cope with increased mortgage payments when interest rates go up.  This would mean that the lender’s exposure to bad debt in the future would be minimal.  It would also encourage lenders lending to each other again and not being so worried about not getting their money back.

It could also have some very negative points too.  Right now first time buyers are finding it hard enough to get on the property ladder so setting a lending limit would make it even harder.  Without first-time buyers it is difficult to form chains which keep the housing market moving.  Also, what would happen to existing customers coming off fixed rates onto variable rates?  It could be that the product they were offered by the existing lenders may not be competitive yet they couldn’t remortgage due to them not meeting the lending affordabilty guide.  This would disadvantage the borrower and give the lender the ability to treat variable rate customers exactly how they wanted.

Personally I cannot see how a 3 x lending limit would help the housing market.  In fact, I think it would push the market further into negative equity.  House prices could tumble where people were desperate to get out of mortgages they now could not afford in the FSA’s eyes.

Affordability is different for everyone and simply applying a limit according to salary is not the answer to a very big problem.  A lot of the people who can’t afford their mortgages now cannot do so because they have lost their jobs.  Even if somone gets a mortgage and fits the 3 x salary model they too would struggle to make payments if they were made redundant.

I would be interested to see what other people feel about this story so please leave comments.  Obviously the FSA have not actually made this comment yet and they may never make it but it is getting people worried so maybe it is worth discussing.